Mains Marathon

Approach

Start by defining what a carbon market is and how it operates. Discuss benefits and challenges associated to Carbon market in India. Conclude by emphasizing the potential of a well-designed domestic carbon market to contribute to India's climate goals and sustainable development.

Answer:

A carbon market is a mechanism designed to reduce greenhouse gas emissions by placing a price on carbon emissions. It operates on the principle that if there is a financial incentive for organizations to reduce their carbon emissions, they will be more motivated to adopt cleaner and more sustainable practices.

Carbon markets work by setting a limit (or cap) on the total amount of carbon emissions that can be released within a certain jurisdiction or industry sector. Within this cap, companies are allocated permits or allowances that represent their allowed emissions. If a company reduces its emissions below its allocated allowances, it can sell the surplus allowances to companies that have exceeded their limits. This creates a market for trading carbon allowances, with the price of allowances reflecting the scarcity of emissions.

In India, a carbon market was introduced through the Energy Conservation (Amendment) Act, 2022.

Some of the benefits of establishing a domestic carbon market in India:

• It can help India achieve its climate change targets and commitments under the Paris Agreement, such as reducing its emissions intensity by 33-35% by 2030 from 2005 levels and reaching net-zero emissions by 2070.
• It can also help India meet its renewable energy targets of installing 450 GW of capacity by 2030 and increasing the share of non-fossil fuels in electricity generation to 40% by 2030.
• It can provide a low-cost and flexible mechanism for reducing emissions across sectors and regions, by allowing the market to determine the optimal price and allocation of carbon credits.
• It can stimulate innovation and investment in clean energy and energy efficiency technologies, creating new opportunities for economic growth and job creation.
• It can enhance India’s energy security and reduce its dependence on fossil fuels, especially imported coal and oil.
• It can improve India’s environmental quality and public health by reducing air pollution and associated health risks.
• It can generate additional revenue for the government through the auctioning or taxation of carbon credits, which can be used for climate finance or other social and environmental purposes.

Some of the challenges of establishing a domestic carbon market in India:

• It requires a robust and transparent system for measuring, reporting, and verifying the emissions and reductions of different entities and projects, to ensure the environmental integrity and credibility of the carbon credits.
• It requires a strong and independent oversight body or regulator to monitor and enforce compliance with the carbon market rules, to prevent fraud, manipulation, or leakage of emissions.
• It requires a high level of awareness and participation among the potential buyers and sellers of carbon credits, to create sufficient demand and supply in the market.
• It requires a careful balance between ensuring environmental effectiveness and economic efficiency of the carbon market, to avoid adverse impacts on competitiveness, equity, or development goals.
• It may face resistance from some sectors or entities that are likely to bear higher costs or face competitive disadvantages due to the carbon market.
• Greenwashing—companies may buy credits, simply offsetting carbon footprints instead of reducing their overall emissions or investing in clean technologies.
• Moreover, the Energy Conservation (Amendment) Bill, 2022 empowers the Centre to specify a carbon credits trading scheme possess several shortcomings.
  • The bill does not provide clarity on the mechanism to be used for the trading of carbon credit certificates— whether it will be like the cap-and-trade schemes or use another method— and who will regulate such trading.
  • There is a question of whether the Ministry of Power is the appropriate Ministry to regulate this scheme or whether should it be the Ministry of Environment.
  • The bill does not specify whether certificates under already existing schemes would also be interchangeable with carbon credit certificates and tradeable for reducing carbon emissions.
    • Two types of tradeable certificates are already issued in India—
      • Renewable Energy Certificates (RECs)
      • Energy Savings Certificates (ESCs).

Establishing a domestic carbon market in India presents a powerful tool for reducing greenhouse gas emissions and transitioning to a more sustainable economy. However, it also poses significant challenges that require careful consideration and planning to ensure that the benefits outweigh the potential drawbacks. A well-designed and properly managed carbon market can play a crucial role in India's efforts to combat climate change while fostering economic growth and innovation.